Microsoft buys Nokia’s phone business for $7.1 billion

Microsoft and Nokia announced today that Nokia's Devices & Services business—the part of the company that builds all Nokia's phones (both smart and otherwise)—is changing hands. Microsoft is paying €5.44 billion ($7.17 billion) for the struggling Nokia division. The deal, subject to shareholder and regulatory approval, is expected to close in the first quarter of 2014.

In the transaction, all of Nokia's device business, including design, manufacturing, sales, marketing, and support, becomes a part of Microsoft. This includes 32,000 staff, of which 4,700 are in Finland.

Remaining behind is Nokia Solutions and Networks (formerly Nokia Siemens Networks), which builds telecommunications equipment and mapping division HERE (Navteq). Nokia is also retaining its Advanced Technologies group, which develops and licenses intellectual property. These parts together account for about half of Nokia's revenue and approximately 24,000 staff.

Nokia CEO Stephen Elop—formerly of Microsoft—will be succeeded as Nokia CEO by Risto Siilasmaa. Elop will serve as Executive Vice President of Devices & Services, and Nokia expects that he will move to Microsoft once the deal is closed.

The headline €5.44 billion figure is split €3.79 billion ($4.99 billion) for Devices & Services and €1.65 billion ($2.17 billion) for a patent agreement. Under that agreement, Redmond is buying a ten-year license to Nokia's patents, with an option to make the ten-year agreement perpetual. Microsoft is also acquiring Nokia's various licenses to patents from Qualcomm, IBM, Motorola Mobility, and Motorola Solutions.

Additionally, and not as part of this transaction, Microsoft is licensing the HERE platform for four years. For HERE, this will substantially replace the internal cross-billing that currently occurs, and Microsoft will become one of HERE's top three customers.

Finally, Microsoft is obtaining a limited license to Nokia's brand names. The Lumia (smartphone) and Asha (featurephone) brands move to Microsoft. Redmond can continue to use the Nokia brand on all current products and can also use it for ten years on any products based on Nokia's Series 30 and Series 40 featurephone platforms. However, it appears that future smartphones will not be permitted to carry the Nokia brand.

Microsoft says that it will continue to license Windows Phone to other OEMs.

Redmond says that with the purchase, its gross margin on each Nokia phone will grow from less than $10 per unit to more than $40 per unit, with "synergies" saving about $600 million in costs each year, and that the deal should start contributing positively to earnings per share by the 2016 financial year. The deal will be financed with offshore cash (just as happened with the Skype purchase).

we all new Elop was a trojan horse... hope microsoft doesnt screw Nokia (i mean, the part they purchased) with they way to do things. they should remain with some indepence, otherwise i feel we will stop to see phones that show nokia legacy in them.

Microsoft is paying that much for the value-add of not having to crash the telephony company into the mountain themselves. Look at their previous attempts in this space: the Danger acquisition is probably most comparable, and while my former coworker loved his sidekick you'd be hard pressed to find someone who remembers what they were anymore...

They're not buying the mapping division? Why not? I guess they have Bing maps, but still. Seems pretty random to leave that out.

It specifically says Navteq, which is an entirely different beast. It's one of the big companies providing map services to GPS devices, Nokia paid $8b for them in 2007. I imagine the map software comes over with the phone stuff and there'll likely be some licensing deal for map data itself in there.

This must further energize Apple/Google/Samsung to make a bid for Blackberry if and when it goes up for sale...

I wonder how this will play out in the future. Nokia was once the dominant mobile phone maker but was far too late and too invested in Symbian to effectively compete with iPhone and Android when they burgeoned into the market. *Looks wistfully at my old faithful N95 in the drawer*Hope Elop learnt some lessons on keeping up esp. if he's being primed as Microsoft CEO.

It's going to be interesting to see if the strong Finnish unions will put up with that employee evaluation that Microsoft has got going. At least the 5-6000 people in the Finnish part will be unionised to around 75-80 per cent, and the Finnish unions are strong and not to be trifled with.

This deal will strengthen Microsoft's presence in the phone and tablet business where it is weak. What is unknown at this time is how long it will take for Microsoft to recoup the investment and to catch up with iOS and Android.

Stephen Elop left Microsoft in amiable terms to lead Nokia. He seems well poised to become Microsoft's next CEO.

Wow, Microsoft really is fulfilling their new "devices and services" mission.

That was my first thought.

Second thought was that Ballmer's departure was probably moved up because of this pending deal. Ballmer deserves credit for being a decent steward of Microsoft's enterprise Windows/Office clients, but I bet the BoD had misgivings about how Microsoft's investors would react to Ballmer being put in charge of this redoubled Windows Phone effort. "Out with the old, in with the new" is an ordered list.

Amazing that 5 years ago this would have been OMG incredible news but right now I can't think of a reason to be interested. The deal doesn't even have the shock value of the $8.5 billion paid for Skype.Right now no-one likes Microsoft and no-one wants a Nokia phone. Maybe that means they were meant for each other...

Wow... how the mighty have fallen... Only 7 Billion dollars for Nokia's devices division. :-(

I wonder if Microsoft will be smarter about integrating Nokia and not run them into the ground like Danger Inc after it was acquired.

Probably. What killed Danger was MS insisting on an immediate switch from linux/java to windows mobile 6.x/c# at the same time the windows mobile team was entirely focused on WP7 and had no time to support the Danger people's needs. Having to rewrite the entire front end from scratch and make major changes to the backend at the same time was what utterly nuked the timetable and lead to Verizon murdering the Kin to spite MS.

One reason I have not seen mentioned for this acquisition is that it likely gives Microsoft very favorable access to Nokia's patents. One of the reasons it is so difficult to complete in the cell phone space is the number of patents that device manufacturers run afoul of. By gaining access to Nokia's broad patent portfolio, either directly through the Devices & Services Business, or a sweetheart deal with the Advanced Technologies group, Microsoft gains both powerful shields and weapons to wield in patent infringement suits.

Amazing that 5 years ago this would have been OMG incredible news but right now I can't think of a reason to be interested. The deal doesn't even have the shock value of the $8.5 billion paid for Skype.Right now no-one likes Microsoft and no-one wants a Nokia phone. Maybe that means they were meant for each other...

Yet you felt it was necessary to voice your strong opinion on a topic you say doesn't interest you in the least. There's a German name for that but I have forgotten it.

I'd say this was a very smart move by MS. They don't have lots of personnel with good experience in building hardware. Nokia has that. Coupled with the fact that they paid much less than Google for Motorola and I think you have a bargain.

It's looking likely that Elop will be CEO -- WP is at 8% marketshare in Europe and so his track record at this point is not bad. Nokia's phones grew marketshare even in a market dominated by Apple and Samsung. However, that's just one datapoint and you could argue that he's too untested for someone to take over a company the size of MS.

The Asha takeover is pretty interesting too. I wonder if MS will develop a super lightweight version of WP for feature phones?

I can't say I'm surprised. It seemed maybe silly at that point in time, but when Elop came to Nokia, and then again when Nokia dropped everything for WP, the possibility of MS taking up all of Nokia's mobile business was in the mind of a lot of people I interact with, including myself. And tadaa, it happened.However, what I liked most is this:

"Microsoft is also acquiring Nokia's various licenses to patents from Qualcomm, IBM, Motorola Mobility, and Motorola Solutions."

Yeah, Motorola So, even more money for MS coming from Google/Android These guys are really something

Well they are not getting any patents - only licenses. That was supposedly the big draw with Motorola. And yes I know that didn't really pan out for Google as far as actual benefits from owning those patents, but they do still own them, which is a significant difference.

"Microsoft is also acquiring Nokia's various licenses to patents from Qualcomm, IBM, Motorola Mobility, and Motorola Solutions."

Yeah, Motorola So, even more money for MS coming from Google/Android These guys are really something

No you are getting that sentence wrong. They are acquiring the licenses to the patents - not the patents. Meaning that (assuming it's legal to sell those licenses on like this) they won't have to pay Motorola (or the others) for the licenses, because Nokia already did once and MS now owns that licenses. Not that those companies now need to pay MS - the patents still belong to Nokia.